Norwegian overcomes hurdles to become successful in Hawaii

Norwegian Cruise Line's 10% price increase on Hawaii cruises next year is a big improvement from several years ago, when the line's 2,138-passenger Pride of America was struggling.

Norwegian’s president, Kevin Sheehan, said the renewed interest in Hawaii is part of the story, but demand for cruises is strengthening, as well.

“We’re trying to signal that this is an industry that is phenomenally undervalued,” Sheehan said in an interview.

The company’s Hawaii product has slowly climbed back from a rocky start in the mid-2000s, when Norwegian boldly sent three U.S.-flagged ships to Hawaii for interisland itineraries that foreign-flagged vessels usually cannot offer because of U.S. shipping law.

To comply with the law, Norwegian exclusively hired U.S. crews, which enabled it to sail from one Hawaiian island to another without a long detour to a foreign port. But the experiment was plagued with difficulties, and two of the three ships left Hawaii.

Remaining behind was the Pride of America, which does seven-night cruises with four ports of call and more than 100 hours of shore time for passengers.

Norwegian has solved several problems to get demand to the point that prices can rise, Sheehan said.

The chief issue was a reputation for indifferent service on the ships. U.S. crews were unaccustomed to the working conditions of the cruise industry, and turnover was high.

In retrospect, Sheehan said, it was a mistake to put three ships in the market so suddenly when the labor force was an unknown.

Today, the turnover has stabilized. “We took the best of the best from the three ships and put them on one ship,” Sheehan said.

A change in the law also allows up to 20% of the Pride’s crew to be foreign.

The net result is that passenger satisfaction as measured by surveys is up “substantially,” he said.

Norwegian is also benefiting from its fleet reduction, which brought supply back in balance with the true demand for intra-Hawaiian cruises, according to Sheehan.

Travel to Hawaii in general is on the rebound. Visitors of all types to the islands are up 9.6% through September, according to the Hawaii Tourism Authority.

One curb on demand is the expense of flights and taxis to get around Hawaii’s eight main islands. Sheehan said a big selling point for the Pride is the value proposition of visiting four ports in seven days without unpacking and getting a cruise at the same time.

Uf Tukel, co-president of WMPH Vacations in Delray Beach, Fla., said his average transaction for a Hawaii cruise this year is $4,400, up from $4,200 in 2011.

“We’re selling more balcony [cabins] than we did last year,” he said.

Gains like that helped propel Norwegian’s third-quarter earnings, which rose 19.2%, to $128.1 million. The Pride is one of 11 ships in Norwegian's fleet.

Tukel said his agency markets the Hawaii cruises heavily through a custom website, HawaiiCruiseOutlet.com.

“For us it’s been a great product. Looking at Norwegian’s decision to raise prices for it, I think it’s justified,” he said.

The Pride is scheduled for a two-week drydock in late March, during which it will get $30 million in improvements, including 24 new suites.

Sheehan said the Jan. 1 price increase reflects the value of the upgrades and gives anyone who wants to sail at current prices a window to do so.

Norwegian has no formal agreement with Hawaii to keep the Pride sailing there, but Sheehan said he would be more inclined to add capacity than abandon the state.

“I love the market,” he said. “With the right opportunity, we might entertain putting another ship there.”Follow Tom Stieghorst on Twitter @tstravelweekly.